Scaling Up Formal Savings: Lessons From The SEEP Annual Conference
Washington, US, December, 01 2011 -
Shifting from a credit-centric mentality toward integrating savings into long-term institutional strategies is a process that requires flexibility. Adjustments must be made to regulations in order to meet know-your-customer requirements for minors without IDs, and information systems should be tweaked as well to effectively monitor and evaluate outcomes of savings to various bottom lines.
The workshops in the Formal Savings Track of the 2011 SEEP Annual Conference tackled questions that many of us face when it comes to savings:
- Is there a business case?
- How do I design a savings product that is relevant and that clients will value?
- What changes do I need to manage in order to add savings to my suite of products and services?
- What do we do differently to provide savings opportunities for youth?
As the dialogue, research, and learning continues and we look ahead, the microfinance community must consider the barriers and enablers to scaling savings. The barriers include increased competition and market saturation, which result in fewer cross-subsidy opportunities to apply profits of one product to cover the cost of another. Additional time and effort are also necessary, both to build trust to be the guardian of assets and to realize profits as you support a small saver to graduate to other products.
Shifting from a credit-centric mentality toward integrating savings into long-term institutional strategies is a process that requires flexibility. Adjustments must be made to regulations in order to meet know-your-customer requirements for minors without IDs, and information systems should be tweaked as well to effectively monitor and evaluate outcomes of savings to various bottom lines. Above all, institutions must maintain their commitment to small savers, even through tough times.
Despite all these barriers, as a community and with the support of donors who also seek to create ways to scale-up savings, together we can:
- Experiment with new partnerships, beyond financial institutions;
- Facilitate affordable and relevant financial education;
- Explore innovative ways to drive-up deposits (both in frequency and amounts) based on findings of behavioral economics, including lotteries and labeling;
- Secure client protection by considering principles or standards for savings products;
- Institutionalize cross-selling opportunities and spillover effects of youth savings to siblings, family, and community; and
- Employ savings as way to achieve financial inclusion and initiate financial citizenship.
The following is a collection of key takeaways shared by SEEP Network members who organized learning opportunities for their peers at this year’s gathering in Arlington, Virginia.
The Elephant in the Room: Can We Build a Case for Microsavings?
The answer is yes. Empirical evidence concludes that although savings accounts of small savers are quite costly to provide, a number of important channels exist through which small savers may be a profitable, or even highly profitable, client segment.
Participants of this session learned the difference between a business case and business model. Namely, a model includes not only the business case, but also comprises the operational model. The equation: business model = financial costing + projections to determine breakeven + operational model.
Here’s a checklist to investigate while building a business model for savings for your institution:
- Measure marginal costs, not average costs. Be careful what cost figures go into your analysis. Consider clarifying the overhead costs in running a financial institution from the additional, new costs related to a savings product when completing a cost-benefit analysis.
- Consider opportunities to cross-sell. Small savers may also take out loans, send and receive money transfers, buy insurance, pay bills, and purchase other financial products. Also, small savers are not necessarily small borrowers.
- Integrate technology. Automatic teller machines, point-of-sale devices, and mobile banking can support profits by reducing costs.
- Keep the long-term outlook in mind. Current small savers have the capacity to contribute to future profitability and growth.
- Remember the poor need a place to save safely. As a last resort, you could consider higher fees and/or lower interest rates on savings accounts to help break even.
Financial Access at Birth (FAB): Can Financial Citizenship Start at Birth?
Once you’re convinced of the value proposition of a savings product, you must carefully design a product that is informed by market research and an understanding of the psychology of savings.
Participants in this session experienced the type of investigation necessary for needs assessments and feasibility studies; digested and prioritized market research and country analysis; designed a product and operations based on the Financial Access at Birth model; and built a business plan. A number of checklists can help us prioritize the client, including Stuart Rutherford’s “SAFETINET.”
Formal and Informal Savings for Youth: Contextualizing an Appropriate Response
The type of savings product you design will require accommodations for the target population. Participants in this session had a chance to learn about adjustments necessary to successfully design and deliver products for youth populations. For youth you may:
- Consider formal and informal models
- Integrate financial education
- Offer both group and individual Options: including “YSLAs”, Village and Savings and Loan Associations for Youth.
- Provide additional services: promotion meetings, trainings, internships
- Expect additional spillovers: positive behavior changes, increased school attendance, increased confidence
- Seek new partnerships: vocational schools, youth violence prevention programs, community leaders and trusted adults
- Adjust delivery and information management: oral versus written model
- Anticipate new challenges: interference from parents, migration, child labor
- Shift perception: perceive short-term costs of additional services as long-term investments
Achieving Microsavings Success through Operational and Organizational Change
Before rolling out the new product you’ve designed, pause and plan for change management. Many products fail when an institution skips this critical step and exposes itself not only to product failure, but also to other risks to the institution’s reputation and existing products and services, not to mention morale and culture. Introducing a new product could mistakenly be perceived as requiring little or minor adjustments, while in most cases a new product or service benefits from adjustments to the vision, strategy, leadership, competencies, structures and processes, and culture of an institution.
Even if you’re not introducing a product but responding to increased competition, managing through a crisis, or adjusting to changes in regulations or market demand, this framework can guide you to develop a strategy to minimize risk and maximize opportunities.
Successful change = product + people + process.
(1) Establish expectations on how to approach change.
(2) Assess and adjust structure and job descriptions, any skills gaps, recruitment and selection, learning and development, performance targets and evaluation, and rewards and incentives.
(3) Develop a communications plan, both for internal and external communications.
(4) Implement supporting mechanisms, which could include management information systems.